That’s where days sales outstanding comes in.īusiness owners who regularly send invoices can monitor their DSO on a regular basis to ensure that they are collecting invoices in a timely manner. Any one of these circumstances could cause the amount of time to collect an invoice to lengthen. And there are a number of factors that could drive the collection of an invoice to the complex side of the spectrum, including poor collections processes, invoice errors, failures to deliver on the goods or services paid for, or cash flow issues on the customers’ side.

The process for collecting an invoice may be as simple as sending a reminder email or as complex as engaging a collections agency for help. Sending invoices to customers for goods or services is common practice for most businesses, with the exception of retail or restaurants where transactions take place immediately.Īnd after invoices have been sent out for payment, they must then be collected. What Is Days Sales Outstanding (DSO)?Īs long as people have been trading goods, they have been using invoices to show outstanding debts. The result will show the average number of days it takes your company to collect payment from outstanding invoices. Insert your accounts receivable from the balance sheet and net sales over the period from your income statement, and then select the window of time you’d like to analyze. We recommend at least three months to get an accurate average. To calculate your DSO, determine the length of time you would like to analyze. Not only that, a high DSO can signal that there may be other problems within the business that need addressing. Any business that invoices customers and sets payment terms should monitor their DSO closely because the more time is spent waiting to collect cash, the more effort (read: money) is ultimately required. Days Sales Outstanding, or DSO, helps business owners assess how well they are collecting on outstanding accounts receivable.

How do you calculate dso